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Measures the absolute distance between upper and lower Bollinger Bands, exposing the current volatility regime and whether it is contracting or expanding.
Bollinger Band Width measures the distance between the upper and lower bands. Narrow width suggests low volatility, wide width suggests high volatility.
Bollinger Band Width measures the distance between the upper and lower Bollinger Bands, expressed as a percentage of the middle band. This volatility indicator shows how expanded or contracted the bands are, helping identify periods of low volatility that often precede significant price moves (the "squeeze") and periods of high volatility that may signal exhaustion.
The calculation:
Bollinger Width = (Upper Band - Lower Band) / Middle Band × 100 Or equivalently: Bollinger Width = (4 × Standard Deviation) / SMA-20 × 100
Example:
Upper Band: $54 Lower Band: $46 Middle Band: $50 Width: ($54 - $46) / $50 × 100 = 16%
Why Bollinger Width matters:
- Volatility measure: Quantifies current volatility level
- Squeeze identification: Extremely narrow width signals potential breakout
- Relative volatility: Compare current to historical width
- Cycle timing: Low volatility precedes high volatility and vice versa
Interpreting Bollinger Width:
- Narrow width: Low volatility; squeeze in effect; breakout coming
- Wide width: High volatility; large price moves occurring
- Widening: Volatility expanding; trend developing
- Contracting: Volatility decreasing; consolidation phase
The Bollinger Squeeze:
- Definition: Width reaches historically narrow levels
- Significance: Often precedes significant directional moves
- Direction unknown: Squeeze shows volatility will increase, not direction
- Confirmation needed: Wait for price to break band for direction
Trading applications:
- Breakout preparation: Narrow width alerts traders to watch for breakout
- Position sizing: Reduce size in high width (volatile) periods
- Strategy selection: Use range strategies in narrow width; trend in wide
- Exhaustion signals: Extremely wide width may precede reversal
Historical comparison:
- 6-month low width: Significant squeeze developing
- Compare to average: Context for current width level
- Volatility cycles: Markets cycle between high and low volatility
Limitations:
- No direction: Width doesn't indicate up or down
- Timing: Squeeze can persist longer than expected
- False signals: Not every squeeze leads to major move
Bollinger Width transforms the visual bands into a quantifiable measure, making it easier to compare volatility over time and identify significant squeeze conditions.